A Promise of Paradise – Why I am Not Buying Property in Mexico

Whilst vacationing in Mexico, I was fortunate enough to stay at a large 5 star hotel – The Grand Bahia Principe Sian Kaan. The hotel is actually a giant resort made up of 4 hotels in addition to a world championship golf course.

The boundary of the Grand Bahia makes a vast footprint on the Rivera Maya – hundreds and hundreds of Acres. Whilst the 27-hole golf course takes up a large portion of this space, dense untouched forests remain within the perimeter of the resort. A large development in currently underway to transform much of this space into new neighborhoods; offering a lifestyle change to lost souls, a second home to rich tourists or perhaps an investment opportunity to the Savvy!

Buying a Holiday Home Abroad to Let

If you are here to read advice on how to go about buying a holiday home in a foreign country to make you rich – I’m afraid you have come to the wrong place. Instead, I am going to give you my two-cents on why buying a holiday home in Mexico is definitely not for me.

Perhaps everyone has a dream of owning a beautiful property abroad where they can stay anytime for free and rent it out while they are not using it. It Sounds wonderful doesn’t it? Other holidaymakers can pay your mortgage off and you can use the place whenever you like for free!

It just so happens that the hotel here is currently offering Condos for sale starting at around $160K, going up to $600K. The homes are nothing short of stunning – set in a tropical paradise in the jungle, just minutes from the sea.

To begin with, I was lured by the idea of owning a little piece of paradise. After a reality check and further research – here are four reasons why I am definitely not going to buy a holiday home in Mexico as an investment property:

 

1. Under-developed legal / political system. Buying a rental property in Mexico is very different to buying one in the UK or North America. In a country still rife with bribery and more dodgy-dealing than most, legal documents might not hold the same credence as they do back home. It would be a lot of work to find a reputable Mexican lawyer who could read over any contracts / agreements etc.  and that is not to mention what could be lost in translation!
2. Pre-approved developer financing sounds great, but schemes can just as quickly fall flat on their face. The chances are a lot of investments will be for properties that are not yet built – a promise of paradise.
3. The condos are likely already over-valued. Mexico is a poor country and while the condos are in a beautiful and rural setting, things can change. The hotel may decide to chop-down too much of that beautiful forest and all of a sudden the condo loses its appeal (and value)!
4. It is too far away! Mexico is simply too far away from the UK if anything major should go wrong. Whilst I could employ a property management agency to clean the rooms etc. after each visit, bad things can happen. This was highlighted to me even more today when I read the article on This is Money – 10 Strangest things on rental properties.

 

Buying a Hotel Suite to Let

An alternative to buying a condo to rent privately would be to buy a hotel suite. The Sian Kaan hotel in Mexico is actually a series of investor-owned condos, which are leased to the hotel. Essentially, the hotel provides a management service for you; cleaning rooms, pool, entertainment, drinks, food etc.

The deal is that you pay a minimum of $160,000 for a single suite. The hotel provides you the deeds to the property and the opportunity to make use of the hotel room whenever you like – the catch being that you still have to pay the all-inclusive supplement. The hotel pays you a guaranteed lease fee (which is not dependent on occupancy) at around 7-8% p.a. The hotel also pays the maintenance fees, insurance and takes care of everything else.

Sounds like a good deal right? Perhaps… but there are a couple of caveats that I have with the arrangements:

 

1. The leases have terms of up to 10 years. If the hotel goes bankrupt or decides to change their terms, you are left with an asset that has lost a lot of appeal and hence value. Furthermore, if the hotel’s quality slips or brand is de-valued, will this investment be as valuable?  I like to have much more control over my investments than this!
2. The asset itself is highly over-valued. You are paying for the opportunity to make money leasing it back to the hotel (and hence its reputation) and not just the building itself.
3. It is very unclear who is responsible for ‘refreshing’ the room. The term maintenance is very loose and I would need far more reassurance that the hotel would ensure it was well kept.

 

Conclusion

The idea of a rental property in paradise is still very much appealing – in fact it is still very much a dream. Investing in Mexico in general is quite risky – bad weather, political situations, corruption and shear distance from the UK makes me far too uneasy at this stage. A 10 hour+ flight is too long and too expensive to allow regular check-ups.

At this stage in my life, there are far more appealing things to invest in – I am still confident that the stock markets are on the rise and that my investments in emerging markets will reap some long-term benefits. Furthermore, these investments allow me an easy out – I can quickly sell out if my situation changes or I get uncomfortable! They are also far less demanding than dealing with foreign income, taxes and copyright laws.

Real estate investing is definitely something on the horizon – but perhaps a little nearer to home and in a country with better-established laws and regulations. I am sure that plenty of people who invest in hotel suites and condos here in Mexico and in other places make a tidy return – kudos to them.

For me a yield of 10% ish is not worth the required hassle… especially when I have doubled that yield in only 8 months on the FTSE 🙂

 

Do you know anyone who has invested in a foreign rental? Did they regret it? Do they make money?